Counterparty Credit Risk in a Multivariate Structural Model with Jumps

39 Pages Posted: 9 Feb 2013 Last revised: 11 Oct 2014

See all articles by Laura Ballotta

Laura Ballotta

Sir John Cass Business School - City, University of London

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Sir John Cass Business School - City, University of London

Date Written: September 2014

Abstract

We present a multivariate version of a structural default model with jumps and use it in order to quantify the bilateral credit value adjustment and the bilateral debt value adjustment for equity contracts, such as forwards, in a Merton-type default setting. In particular, we explore the impact of changing correlation between names on these adjustments and study the effect of wrong-way and right-way risk.

Keywords: Counterparty Risk, Credit Value Adjustment, Debt Value Adjustment, Levy Processes, Normal Inverse Gaussian, Wrong Way Risk

JEL Classification: C15, C63, C65, G13

Suggested Citation

Ballotta, Laura and Fusai, Gianluca, Counterparty Credit Risk in a Multivariate Structural Model with Jumps (September 2014). Available at SSRN: https://ssrn.com/abstract=2212813 or http://dx.doi.org/10.2139/ssrn.2212813

Laura Ballotta (Contact Author)

Sir John Cass Business School - City, University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.city.ac.uk/people/academics/laura-ballotta

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Sir John Cass Business School - City, University of London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

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